14 CapitalPress.com
Dairy
Dairy price outlook not as rosy as futures market
U.S. forecast quarterly dairy prices
Capital Press
(AMS announced, dollars per pound)
Despite a recent rally in in-
ternational dairy prices, dairy
suppliers and milk producers ar-
en’t out of the woods yet, Rabo-
bank analysts reported in a we-
binar accompanying Monday’s
release of the bank’s quarterly
dairy report.
“The fundamentals are im-
proving but not as fast as cur-
rent pricing suggests,” said Tim
Hunt, Rabobank global dairy
strategists and author of the re-
port.
Dairy markets might have
passed through the worst, he
said, but things aren’t likely to
be as tight through the middle of
the year.
A surprising rally in glob-
al product prices starting in
mid-February led to a 42 percent
increase in whole milk powder
Item
Q3 2014
Q4 ’14
Q1 ’15
Q2 ’15
Q3 ’15
Q4 ’15
Q1 2016
Non fat dry milk
AA butter
Block cheddar
Whey powder
$1.76
2.50
2.08
0.69
1.20
2.01
1.92
0.66
1.04
1.65
1.53
0.56
0.99
1.53
1.49
0.41
1.07
1.51
1.51
0.44
0.23
1.57
1.58
0.45
1.33
1.63
1.65
0.48
Class III milk
Class IV milk
$22.82
23.42
21.22
18.89
15.65
13.42
15.52
15.09
16.47
16.17
(Dollars per hundredweight)
14.18
12.83
Sources: Rabobank; USDA
14.66
13.42
Capital Press graphic
prices from mid-December,
with butter and skim milk pow-
der both up 20 percent, the bank
reported.
But the strength of the rally is
hard to justify based on market
fundamentals, Hunt said.
Milk production growth in
the big seven export regions has
started to slow on largely lower
milk prices and aided by a dry
spell in New Zealand and heavy
over-quota fines in EU in the
lead up to the end of the quota
year, he said.
But U.S. farmers continue to
expand milk production, up 2
percent year over year in Janu-
ary, with little overall domestic
demand growth and a 17 percent
year-over-year loss in exports in
the last quarter of 2014, he said.
Globally, significant decreas-
es in dairy imports by China and
Russia are leading the first de-
mand-driven contraction in in-
ternational trade since the 2009
financial crisis. The significant
trade contraction in 2013 was
from running out of product, he
said.
“China is long on milk at the
moment and slashing imports,”
Hunt said.
That, in addition to a need
to work off accumulated in-
ventory from earlier aggres-
sive purchasing, has Chinese
dairy imports down 50 per-
cent to 60 percent, he said.
“Russia is not a lot better
off,” said Tom Bailey, Rabo-
bank dairy analyst.
Russia’s ban on EU imports
and a 15 percent drop in the
value of the ruble had Russian
dairy imports down 30 percent
year over year in the last quarter
of 2014. If those bans remain, it
will mean a 40 percent reduction
in the country’s dairy imports in
the first half of 2015, he said.
Other buyers have stepped
in to increase imports. Unfortu-
nately it’s not enough to com-
pletely offset losses to China
and Russia, and global import
volumes were down 2.5 percent
in the fourth quarter, he said.
Rebalancing dairy markets
in China will take time, and
exporters should prepare for a
sharp year-over-year decline in
China’s imports in the first half
of 2015, Hunt said.
Producer group: Dairymen must take control
By CAROL RYAN DUMAS
Capital Press
The number of dairy oper-
ations in the U.S. has declined
from about 650,000 in 1970 to
about 45,000 today, according
to the USDA.
A way to stop that trend is
for dairymen to change their
mindset, unite and take control
of their industry before it’s too
late, according to the National
Dairy Producers Organization.
“The main focus is sus-
tainable profitability for dairy
farmers so we can preserve”
the dairy farmers that are left,
said Bob Krucker, a Jerome,
Idaho, dairyman and a director
of NDPO.
If not, the dairy landscape
could shrink from 45,000 di-
verse dairy operations and a na-
tionwide infrastructure to small
pockets of large production, he
said.
Krucker said dairymen need
to balance supply with demand
instead of producing so much
Carol Ryan Dumas/Capital Press
Bob Krucker, National Dairy Producers Organization board
member, checks e-mail correspondence in his office at his Jerome,
Idaho, dairy on Feb. 12.
milk that its value falls below
cost of production.
Dairymen can’t keep in-
creasing production 4 percent
to 5 percent a year when de-
mand increases only 1 percent
to 2 percent, he said.
That creates a situation
where processors or co-ops
can pay less for milk because
there’s a lot out there. Just sta-
bilizing production would im-
mediately kick up the price of
milk, he said.
And that’s absolutely do-
able, he added.
“Any dairy farmer would
accept a 2 percent reduction to
be profitable,” he said. “That’s
common sense.”
Balancing supply with prof-
itable demand will work, and
dairy farmers have the power to
do that, he said.
“It’s not rocket science; it’s
basic economics,” he said.
The problem is a lack of
unity and a total loss of control
by dairy farmers over the man-
agement of their farmer-owned
processing co-ops, which con-
trol 80 percent of the country’s
milk production, he said.
The demand for dairy
products continues to increase
long term, John kilson, Dairy
Farmers of America senior vice
president and chief fluid milk
marketing officer said in an
email response to Capital Press
questions.
However, for several de-
cades milk production has also
steadily increased — some-
times at a rate higher than the
increase in demand, he said.
“This excess supply places
stress and cost on the system.
The market, and individual
farmers, would benefit from
better alignment on a long-
term basis of supply and de-
mand,” he said.
But Krucker contends co-op
bureaucracy is keeping dairy
farmers poor by encouraging
them to overproduce.
Milk marketing cooper-
atives have various types of
membership and marketing
agreements, kilson said.
DFA markets all of the milk
produced by its farmer-owners,
which includes balancing their
supplies with customer demand
by selling the milk for its best
economic return, he said.
Dairy farmer-owners of co-
ops receive the value of their
milk marketed to processing
customers each month, he said.
Also, cooperatives that in-
vest member capital in busi-
nesses, such as processing
plants, may distribute business
earnings to farmer-owners
through patronage payments,
kilson said.
Marketing all the milk that
co-op members can produce
doesn’t mean it’s profitable on
the farm, Krucker said.
Asia investing in Oceania dairy sector
Asian dairy companies flock
to Oceania
RUSSIA
MONGOLIA
CHINA
INDIA
Bay of
Bengal
South
China
Sea
China leads the way in
a recent bid to secure
external sources of
milk in Australia and
JAPAN
New Zealand,
according to a recent
Rabobank report.
PHILIPPINES
Pacific
Ocean
Equator
PAPUA NEW GUINEA
INDONESIA
Indian
Ocean
N
Miles
0
600 1,200
Alan Kenaga/Capital Press
Coral Sea
AUSTRALIA
NEW
ZEALAND
By CAROL RYAN DUMAS
Capital Press
Asian dairy companies —
the majority in China — have
been investing in Australia and
New Zealand operations to pro-
cure milk and other products,
according to a new report by
Rabobank.
Investments in the Australia
and New Zealand dairy sec-
tors is not a new phenomenon.
Most recent capital investments
are in the form of strategic part-
nerships to help build the sup-
ply chain into Asia, Rabobank
analysts Hayley Moynihan and
Emma Higgins reported.
Bilateral trade agreements
giving New Zealand and Aus-
tralia preferential access to key
Asian countries complement
Oceania’s other advantages of
competitive production costs
and geographic proximity, the
analysts said.
“These magnetic forces
mean that Oceania will contin-
ue to be a focal point for Asian
dairy investment,” they said.
As reliable dairy exporters,
located on Asia’s doorstep,
New Zealand and Australia
represent a first port of call to
secure exportable product. But
Asia’s search for strategic part-
nerships will need to contin-
ue in other parts of the world,
due to fewer opportunities
and slowing milk-production
growth in Oceania, Rabobank
said.
The desire to secure sup-
plies outside Oceania is also
driven by the need to mitigate
the risk of relying on supply
from New Zealand and Austra-
12-2/#4N
lia, the analysts said.
The EU and the U.S. have
much larger milk pools to
draw from and will provide the
largest share of export supply
growth globally over the me-
dium term. Asia’s investments
to secure supplies of dairy
ingredients are likely to be in-
creasingly directed toward the
Northern Hemisphere, the an-
alysts said.
China’s Inner Mongolia
Yili Industrial Group recently
aligned with Dairy Farmers of
America to build a milk powder
plant in the U.S.
“This deal marks the first
time a Chinese company has
invested within the borders of
the U.S. dairy sector,” the ana-
lysts said.
There is definitely opportu-
nity for U.S. dairy in China and
Southeast Asia, said Alan Lev-
itt, vice president of communi-
cations for U.S. Dairy Export
Council.
New Zealand is a small
country with limited capac-
ity to grow milk production
and everyone keeps saying
milk production there will top
out, although it hasn’t yet, he
said,adding that Australia suf-
fers from drought every couple
of years and has no appetite to
expand production.
Dairy
Markets
Lee Mielke
Cash cheese
steady to
higher,
butter down
By LEE MIELKE
For the Capital Press
Cash block Cheddar cheese
closed Friday the 13th at $1.57
per pound, up a penny on the
week and 79 1/4-cents below a
year ago but is at the highest lev-
el since Jan. 13. They were un-
changed Monday and Tuesday.
The Cheddar barrels finished
Friday at $1.5450, up a nickel on
the week and 71 3/4-cents be-
low a year ago. They were also
unchanged Monday but ticked
up a penny and a half Tuesday,
to $1.56. Seven cars of block
traded hands last week and five
of barrel.
Butter headed south last
week, closing at $1.6950 per
pound, 5 1/2-cents below the
previous week and 18 1/2-cents
below that week a year ago. The
spot gave up a penny and a half
Monday but was unchanged
Tuesday. Ten cars traded hands
last week.
Cash Grade A nonfat dry
milk fell below $1 per pound
for the first time since Jan. 27,
closing Friday at 99 1/4-cents
per pound, down 3 1/4-cents
on the week, and that after
dropping 13 cents the previous
week. The powder lost a quar-
ter-cent Monday and a half-cent
Tuesday, slipping to 98 1/2-cent
per pound, lowest spot price
since Jan. 23. Ten cars found
new homes last week in the spot
market.
Global auction
plunges 8.8 percent
Tuesday’s Global Dairy
Trade auction reversed six ses-
sions of gain as the weighted
average for all products plunged
8.8 percent, following a 1.1 per-
cent increase on March 3 and
10.1 percent jump on Feb. 17.
All products offered were down.
The losses were led by ren-
net casein, down 15.2 percent,
following a 0.7 percent drop last
time. Buttermilk powder was
next, down 11.6 percent after
jumping 6.8 percent last time.
khole milk powder was down
9.6 percent, following a 1.0 per-
cent loss last time.
Butter took a 9.4 percent hit
after a 2.5 percent jump last time.
Anhydrous milkfat was down
8.4 percent, following a 2.2
percent loss last time. Cheddar
cheese was down 7.4 percent af-
ter increasing 10.8 percent in the
last event, and skim milk pow-
der was down 5.5 percent, after
gaining 5.9 percent last time. No
winning price was published on
sweet whey powder.
FC Stone reports the aver-
age GDT butter price equated
to about $1.6126 per pound
U.S., down from $1.7744 in the
March 3 event. Contrast that
to CME butter which closed
Tuesday at $1.68 per pound.
The GDT Cheddar cheese av-
erage was $1.4198 per pound
U.S., down from $1.5318. The
U.S. block Cheddar CME price
closed Tuesday at $1.57. GDT
skim milk powder, at $1.2390
per pound U.S., is down from
$1.3314, and the whole milk
powder average at $1.3280
per pound U.S., is down from
$1.4702 in the last event.
12-4/#4
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By CAROL RYAN DUMAS
March 20, 2015